Win-Win Capitalism The System Where No One Loses

Yes reader...now we have Win-Win Capitalism...

What's "Win-Win Capitalism"?

Glad you asked.

It's the system where no one loses. You make a trade - and there's never anyone on the other side! Remarkably idiotic in theory...it is even more moronic in practice. Still, that's what people think.

Since around 1980, investors have come to see capitalism as a benign force. It makes people rich...if they can only get enough of it.

"How can I get in on this capitalism thing?" they asked themselves.

Easy, peasy...buy some shares in the greatest capitalistic institutions the world ever saw - America's publicly traded companies. Or, if you feel a little unsure with P/Cs, yields, and double-entry bookkeeping...you can buy a house. Yes, dear reader, a house...four walls and a roof...the ol' home place...mi casa...my digs...the nest. Over the last five years a house was not only an investment...(which is to say, an opportunity to participate in modern capitalism at its finest) it was a leveraged speculation. When you took up a house with an interest-only ARM you didn't buy it; you had an option to buy it sometime in the future...when you had the money.

Talk about win-win capitalism...you couldn't lose with a house. Prices only went up - everybody knew that. You didn't have to put any money down. And they gave you tax breaks too. Win...Win...and Win some more.

But what's this?

The winners seem to be turning into losers. House prices are off all over the nation. And Lehman Bros. expects the number of foreclosures next year to be more than three times this year's total.

Don't worry. The feds are coming to the rescue. Bush, Paulson et al have already proposed a 'teaser freezer' package - holding rates at the low teaser levels until the homeowners can pay more...or until the press loses interest in the story, whichever comes first. And here comes the voice of age, experience, wisdom and treachery - Alan Greenspan - who says the government should provide more financial help to homeowners: "Cash is available," said the Sage, "and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this."

Cash is available? What cash? All we see is deficits. Americans haven't saved anything in many years. The government goes deeper in the hole every minute. He must mean the kind of cash that comes from printing presses, not the real stuff.

Let's stop being so hard on the old geezer and return to the housing market...

We put the question to our own bro' Jim, who has been working in the Charlottesville, VA, area for many years.

"Well, yes, prices are down," he said. "But I only deal with the top end of the market. There aren't enough transactions to tell what direction prices are going. But you can tell that it's not the same market it was a year ago. Sellers expect that they're going to have to be flexible. And buyers expect sellers to give a little. The top of the market is special, of course. People don't have mortgages. They pay cash, or they're doing a very different form of financing.

"Here is something that you'll be interested in...remember that piece of property you were going to buy down there, about five or six years ago? It was 300 acres. Beautiful spot. You were thinking you might buy it to live on when you retired. I guess that has changed now that your children seem to be concentrating over there on the other side of the pond, but that was the idea. You put in a bid of US$900,000 just after you saw it.

"Well, you were right about the property. The guy who bought it paid about US$1 million, I think. Then, a couple of years later, he flipped it for US$3.5 million. And now some other fellow is building a house right on that knoll that seemed like such a perfect spot...it's a huge house...maybe 9,000 sq. feet. He's a speculator and he's already listed the property for sale at US$6.5 million."

The property was a very good buy at US$900,000. At US$6.5 million, it seems a little steep. Possibly, buyers won't want to pay that much. Even at the upper end, speculators can still lose.

For not only do prices rise and fall, people's attitudes change in subtle ways. No one noticed when Americans began to believe in Win-Win Capitalism. They're not going to notice when they begin to believe in Lose-Lose Capitalism either.

Bill Bonner
The Daily Reckoning Australia

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